Why the dollar is hot again

Like any globe-trotter, capital sometimes gets weary or fearful and just wants to go home.

That may best explain the dollar's latest surge against most rival currencies, including the euro, the British pound and the Australian dollar.

Long a weakling, the greenback now is the muscle among global currencies. If you're headed overseas, you'll like this turnabout. If you're a U.S. exporter who has benefited mightily from the dollar's long slide, or an investor in foreign stocks, the dollar's resurgence is trouble.

This week, even as U.S. stock prices dived again, the dollar jumped.

An index that measures the buck's value against six other major currencies rose 2% for the week, bringing its gain since mid-July to nearly 10%.

The U.S. currency was worth 0.63 euros in mid-July. Now it's worth 0.70 euros. Expressed the other way, the euro has tumbled from $1.59 in mid-July to $1.42 now.

As with all markets, any explanation of currency market moves has to be taken with a big dose of salt, I'll readily admit. But two factors make some sense in the dollar's summer revival.

One is that the plunge in the price of oil and other raw materials has sapped speculators' enthusiasm for commodities, which had been attracting money in part as a hedge against the dollar's loss of value since 2001.

It's not a coincidence that gold has fallen 18% in the last seven weeks while the dollar has rebounded. Gold and the dollar compete with each other for investors' attention.

The other factor that appears to be bolstering the dollar: Many global investors and currency traders have decided that, even though the U.S. economy is struggling, things are rapidly getting much worse in other countries, particularly Britain, Germany and Japan. Currencies often (though not always) reflect the strength of their home economies.

Worries about overseas economies were fanned this week after the European Central Bank and the Bank of England held their benchmark interest rates steady, despite more signs of stress in their respective economies. That raised more concern that Europe and Britain could fall into serious recessions.

While the U.S. Standard & Poor's 500 stock index lost 3.2% this week, the British market plummeted 7%. The German market slumped 4.6%.

Losses also were heavy in many emerging markets. Brazil's main market index slid 6.7% for the week.